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The Basics : Children 1
Investment for children in general has three distinct objectives
1 Encouraging the savings habit
2 Providing the Nestegg
3 School Fees
Encouraging the savings habit
Although many institutions provide attractive rates on children's deposit accounts the primary objective, initially at least, is easy access. It is important that the child should be able to do the saving themselves without parental help. This means that the bank, for want of a better word, needs to be easily accessible and open outside school hours.
The Post Office has many advantages, simply because of the opening hours and the number of branches. It should be noted that many banks also have arrangements which allow their accounts to be operated through the Post Office.
Children are taxable individuals in their own right, with their own tax allowances. Interest on their accounts should therefore be tax-free and tax should not be deducted from the interest. When the account is opened, ask whether you need to fill in a form to enable the interest to be paid without deduction of tax, but see the £100 rule below.
A Second Account and the £100 Rule
Although children are taxed separately from their parents, if the interest they receive on money given to them by their parents is more than £100 the whole of that interest is deemed to be the income of the parents. They then lose the right to have the interest paid gross. This includes pocket money as well birthday gifts from parents etc.
However this rule does not apply to money given to them by someone else, to money won as a prize, or money they have earned. It is therefore wise to open a second account for them to pay presents and prizes into. It shows a clear separation of the two kinds of money and prevents problems with the Inland Revenue in the future.
In the case of the second account, ease of access may not be a high priority and it is then worth going for the highest rate of return.
If parents are particularly generous, the money should either to be put into tax-free investments or investments which do not pay interest as such.
1 Encouraging the savings habit
2 Providing the Nestegg
3 School Fees
Encouraging the savings habit
Although many institutions provide attractive rates on children's deposit accounts the primary objective, initially at least, is easy access. It is important that the child should be able to do the saving themselves without parental help. This means that the bank, for want of a better word, needs to be easily accessible and open outside school hours.
The Post Office has many advantages, simply because of the opening hours and the number of branches. It should be noted that many banks also have arrangements which allow their accounts to be operated through the Post Office.
Children are taxable individuals in their own right, with their own tax allowances. Interest on their accounts should therefore be tax-free and tax should not be deducted from the interest. When the account is opened, ask whether you need to fill in a form to enable the interest to be paid without deduction of tax, but see the £100 rule below.
A Second Account and the £100 Rule
Although children are taxed separately from their parents, if the interest they receive on money given to them by their parents is more than £100 the whole of that interest is deemed to be the income of the parents. They then lose the right to have the interest paid gross. This includes pocket money as well birthday gifts from parents etc.
However this rule does not apply to money given to them by someone else, to money won as a prize, or money they have earned. It is therefore wise to open a second account for them to pay presents and prizes into. It shows a clear separation of the two kinds of money and prevents problems with the Inland Revenue in the future.
In the case of the second account, ease of access may not be a high priority and it is then worth going for the highest rate of return.
If parents are particularly generous, the money should either to be put into tax-free investments or investments which do not pay interest as such.
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